Stars aligning for Capwatt expansion

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Portugal’s Capwatt is targeting expansion within the European Union and may even develop 100 MW of combined heat and power installations if conditions continue to remain favourable.

As European attitudes towards energy efficiency transform from rhetoric into action, Board of Directors' member Miguel Gil Mata told Decentralized Energy he believes Capwatt is in a good place to capitalise.
Miguel Gil Mata of Capwatt
“We believe the fundamentals of the business are there. If the European Union as a whole or its more important members are embracing combined heat and power as a way forward and energy efficiency as an absolute must in terms of the evolution of the energy landscape it is of course good news for us.”

It’s not just the Paris driven-environmental imperative that’s at play in the company’s mind set. The other factor is the gas price. With Capwatt’s expertise being gas-fired combined heat and power it’s a key variable.

“In northern Europe the recent combined evolution of gas prices and electrical prices are very favourable for CHP. Take Germany for example. You don’t see a relative downturn in the electricity prices. You might even see some slight upturn and you see some very competitive prices in the gas market today. There is some stability, though not absolute stability – gas is set to be low for quite some time. Recent weeks have shown that even slight recovery in oil prices is not being followed by gas prices in most of Europe, representing very good news for the CHP business as a whole.”

Mata notes that there are already cargoes leaving the US with liquefied natural gas.

“I do not presently believe that it is particular profitable to take gas from the US to Europe but I think it’s some sort of assurance that the gas prices in the EU will no longer be able to escalate freely as they have done in the past. There will be some kind of pressure to keep prices balanced between the US and Europe once the amount of LNG starts to pick up and the percentage of trading of gas that we are able to do by sea starts to increase.”

“It’s fairly unanimous that the gas prices in the US will stay at the low end of the scale for some time given the fundamentals and abundance of resources. I believe that gas prices will tend to some stability. Of course predicting oil prices is a very difficult exercise but we do see an open road ahead.”

Germany’s Hospitable Environment for CHP

Germany is in the company’s sights as an environment particularly hospitable to CHP at the moment thanks to that country’s recently announced CHP Act. Capwatt wants to serve its formidable industrial base with a reliable, competitive way of generating electricity and thermal energy.

The business model is simple. Potential partners are identified and approached, a thorough analysis of the existing process is carried out before the design of a customised solution.            The company designs, finances, controls and owns the assets on a long term basis under the mutual trust principle. Its control centre is currently being enlarged in anticipation of a growing client base beyond Portuguese borders.
Capwatt CHP plant
Mata refers to what he calls the privilege the company had in building its acumen while developing as part of the (Portuguese retail and investment giant) Sonae conglomerate. Prior to forming the new company of Capwatt in 2008, the previous incarnation developed on-site power facilities for projects involving the whole group in Portugal for decades.

The offshoot business has now grown to the point that is no longer concerned exclusively with Sonae’s considerable commercial assts. Most of their power plants are outside the scope of the mother group. The plan now is to expand first in Europe and perhaps later in North America, but in a cautious and deliberate way, in line with the culture of the larger group.

“We believe we have conquered a significant position within the Portuguese market and now realise we must expand and grow the company further. We have ambitious plans for investment but we have a conservative approach as a company so will do it with caution and slowly so as not to take too many risk in new geographies we do not know. We are determined to forge ahead in a cautious and structured way.”

Preliminary consultations are currently taking place within Germany as part of the general European wide expansionary strategy.

“We would like to commit a significant amount of funds towards expansion and if we meet the opportunities to assure our criteria and safety and profitability, it’s possible to build 100 MW within five years.”

Mata envisages even eclipsing that capacity in certain circumstances.

“Sometimes what you need is a an accelerator – if you are able to make the first plant with an important industrial player that has a multi-site footprint you would probably be able to replicate it with other plants without too much difficulty – then it’s possible to imagine entering a fast track.”

North American Prospects Being Explored

Further down the road is the enticing prospect of the US, which though at first glance, looks to offer an even more lucrative environment than Europe. In truth it’s more complex than that. Mata says there are challenges in that market you don’t necessarily encounter within the EU.

“The north-eastern US region is a very interesting region in terms of fundamentals. The spark spread is very favourable and the dynamics of the economy are very good, probably even better than this side of the Atlantic.

“There are of course a great deal of extra challenges to move to another reality. The American reality, the cultural differences are very different – more so than Germany. It has even greater profitability than you find in Germany but it is harder to move there than Germany. But we are pursuing that market very actively.”
Capwatt CHP interior of one plant
North American challenges aside, there are enough obstacles to overcome in markets closer to home for Capwatt, particularly the way individual markets are set up.

Mata notes that markets are tending more towards a reality that you pay less for the energy commodity but you pay more for other associated costs. He cites payments being made to renewable producers, ‘which are an absolute must for them to produce.’

“It is an energy cost under another name. If CHP plants are not adequately regulated within these new realities they will not be able to compete because they will be facing very low commodity prices and they can be taken out of the market.”

“For example, Gemany’s industrial consumers pay a very significant amount of money in surcharges fort electricity consumption. It’s a very significant percentage of their costs. If you build a CHP plant within a factory in Germany and sell the electricity that you produce on that CHP plant to the manufacturing plant there is a doubt whether that plant is able to phase out that surcharge that it is paying.”

“If you state that the manufacturing plant will have to pay it anyhow it is in fact paying twice and there will be no incentive to build a CHP plant.”

“In other geographies other related issues may arise and you see you are not on a level playing field when you compare CHP with the conventional solution of buying electricity form the grid.”

Lobbying Beginning to Pay off

Mata’s other hat is his role as the Managing Director of Cogen Portugal and his organisation within the broader COGEN Europe tries to make the political classes in Brussels and elsewhere aware of such conundrums affecting a more effective energy efficiency drive.

“We try to lobby as much as we can on these apparently small issues that will in fact prove definitive in whether we can or cannot promote CHP successfully in Europe.

Is the lobby being heard?

“I think things have been worse than they are now but see some interesting movements and Germany in particular is making serious efforts to increase the amounts of CHP in their mix. Across Europe it is not homogenous with lot of difference between countries.”



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